While U.S. Consumer credit increased less than expected in January, we are concerned with what we are seeing in consumer loans and debt in general across the world. Auto Loans With our Cash-Strapped Consumer investing theme, the average amount financed and the duration of new auto loans continues to rise – same car, bigger […]

Thursday’s report on retail sales reasonably should have given the market at least some pause, but the market ignored the disappointing numbers and kept moving on up. The coming months and year are likely to be more challenging for investors than 2017, which is all the more reason to have solid investment strategies based on long-term themes.

The bottom line for the week is equities appear to have shrugged off the concerns from earlier in the month, 3-4 Fed hikes are increasingly likely and wage growth for much of the country remains stubbornly elusive despite the tightening labor market. We believe we have a decent grasp on what is behind the wage conundrum, but that is a topic for another day. As for what to expect from the markets in the coming weeks, we suspect that we are not out of the woods and that another retest of the recent lows is likely before moving on to make new highs.

Inflation rising while hourly earnings have fallen in 5 of the past 6 months. The Fed will find it is under further pressure to hike and/or taper, which applies the brakes to any economic acceleration from tax cuts and more government spending.

Fiscal policy is hitting the accelerator pedal while central bankers are hitting the breaks in a market in which many participants have never experienced a major pullback. This is going to get interesting!

Well, this week was something different! Richly priced equities took it on the chin. The culprit? Rising interest rates, which increase borrowing costs in an economy that is once again heavily indebted across the board at a time when the Fed is reducing its balance sheet, thus hitting the bond market from both sides – weaker demand and extra supply. Add in record high corporate debt and ballooning consumer credit card debt and you have yourself one painful debt-fueled headwind.

The economic data isn’t showing signs of rolling over, but the markets have priced in a whole lot of perfection while the consumer is giving very classic late cycle signals. With volatility remaining incredibly low, portfolio protection is cheap while warning signs are aplenty.

We continue to see signs of modest economic improvement, but when it comes to households in the U.S., improvements are not broadly shared. We are seeing signs of inflationary pressures in producer prices, but little in terms of wage price pressures. On the consumer side, the great deflationary force that is online and mobile consumer shopping continues to overpower any potential inflationary pressures. The push-pull of these dynamics bodes well for companies that are riding the tailwind of our Connected Society investing theme, while addressing pain points being felt by Cash-Strapped Consumers.

Consumer debt (excluding mortgages) have reached record highs as a percent of disposable income and as for that income, gains there remain elusive. So just how is the consumer expect to accelerate spending?